Your HR and Payroll compliance and policy solution! Comply with federal, state, and international laws, find answers to your most challenging questions, get timely updates with email alerts, and more with our suite of products.

The case involved Frank M. Greenfield, a lawyer who made a drafting error in
a client's will, informed the client's beneficiaries of his mistake, and was
then sued by those beneficiaries for malpractice.

“[W]e are uncomfortable with the idea of an insurance company
advising an attorney of his ethical obligation to his clients….”

Justice Robert E. Gordon

Greenfield's liability carrier, ISBA Mutual, said that Greenfield's admission
of error essentially outlined “the elements of a legal-malpractice action” and
thus relieved the company of any duty to defend or indemnify Greenfield under a
clause in his insurance policy that stated:

The INSURED, except at its own cost,
will not admit any liability, assume any obligation, incur any expense, make any
payment, or settle any CLAIM, without the COMPANY'S prior written
consent.

The court disagreed. Justice Robert E. Gordon said this “voluntary payments”
clause “interfered with Greenfield's discharge of his professional duties,”
which include an obligation to keep clients apprised of major developments in
their case. Accordingly, the provision is void as against public policy and
unenforceable, Gordon declared.

Scrivener's Error.

Greenfield was retained to assist Leonard and Muriel Perry with their estate
planning. According to the court, the couple established two separate trusts,
but Leonard, who died first, gave Muriel the authority to modify the
distribution plan for his trust.

Muriel exercised that power by amending her will, with Greenfield's help, in
2007.

Muriel decided to amend her will again in 2008. Greenfield made a critical
error in preparing that document, the court said, by failing to “include
language that [Muriel] was exercising her Power of Appointment from her deceased
husband's trust.”

When Greenfield discovered the error after Muriel's death, the court said, he
informed the Perrys' heirs about the mistake in a June 2008 letter that blamed
the omission on a change in his computer software.

The letter further informed the heirs that they would have to reach a
unanimous agreement as to how to resolve the discrepancy. Otherwise, the bank
serving as a co-trustee of the Perrys' trusts would “be forced to seek a
judicial determination to resolve the scrivener's error,” Greenfield wrote.

Four of the heirs sued Greenfield and his firm for malpractice. The
beneficiaries alleged that they would have inherited over $1 million more under
the 2007 will.

Coverage Fight.

ISBA Mutual filed a declaratory judgment action against Greenfield. The
insurer argued that Greenfield's letter to the beneficiaries constituted an
admission of liability, which violated the “voluntary payments” provision in his
liability policy and relieved ISBA Mutual of its duty to defend or indemnify
him.

Greenfield, the court said, countered with a motion for summary judgment
which argued “that he had an ethical duty to inform the beneficiaries of his
mistake, that he did not admit liability but only informed the beneficiaries of
what occurred, and that the letter did not prejudice ISBA Mutual because JP
Morgan Chase Bank, the trustee, would have immediately informed the
beneficiaries of the same matters if Greenfield had not done so.”

“ISBA Mutual denied that the policy would foreclose Greenfield from complying
with his ethical obligation,” Gordon wrote. Rather, the insurer argued that the
“voluntary payments” clause simply required Greenfield to seek the company's
guidance as to how he might “fulfill his ethical obligations in a way that would
not compromise his defense to a malpractice case.”

The trial court granted Greenfield's summary judgment motion. It ruled in his
favor for several reasons, Gordon said:

[First,] it found that Greenfield's
letter only admitted facts and did not admit liability.… The court further noted
that while ISBA Mutual argued that its insurance policy did not preclude
disclosure, “any limitation on an attorney's ethical duty to disclose raises
public policy considerations.” Finally, the court found that even if Greenfield
had admitted liability, ISBA Mutual had not demonstrated that it was prejudiced
by Greenfield's conduct, finding that “[a]ny claim of prejudice is speculative,
at best.”

First Impression.

The appeals court affirmed. However, it went further than the trial court by
basing its ruling on public policy considerations, rather than the narrower
issue of whether Greenfield's letter constituted an “admission of liability”
rather than a relaying of facts.

“[T]here is very little case law concerning the effect of a 'voluntary
payments' clause such as that at issue in the case at bar,” said Gordon, who
added that the parties' dispute “is essentially a case of first impression.”

Prior decisions have upheld voluntary payment provisions, the court noted,
but none of those cases involved situations in which the application of such a
clause created a conflict with a lawyer's ethical obligation to keep clients
apprised of the status of a case.

“[W]e are uncomfortable with the idea of an insurance company advising an
attorney of his ethical obligation to his clients…,” Gordon wrote. “Instead,
absent instruction from the rules of professional conduct or the Attorney
Registration and Disciplinary Commission, it is the attorney's responsibility to
comply with the ethical rules as he understands them.”

Accordingly, the court concluded that “a provision such as the one at issue
here is against public policy, since it may operate to limit an attorney's
disclosure to his clients.”

Too Broad.

Justice Rodolfo Garcia concurred in the court's judgment but not the
reasoning that led to it. ISBA Mutual's argument against coverage fails as a
matter of basic contractual interpretation, and it is unnecessary to find that
the clause offended public policy, he said.

The plain terms of the liability policy suggest that a breach of the
voluntary payments provision only nullifies an insurer's duty to indemnify,
Garcia said, which is “a separate question from the much broader duty to
defend.”

“Of course, ISBA Mutual's duty to indemnify is not ripe for consideration
where the policyholder has not been found liable,” Garcia added. Accordingly, he
said, there is no reason to consider at this stage whether Greenfield's letter
went further than relating facts and thus violated the insurer's prohibition
against admitting liability.

All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.

Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)

Notify me when updates are available (No standing order will be created).